| Monetary-policy proxy variable is a quantitative or price-based indicator which can represent the intentions of the central bank's monetary policy.For a long time,in the domestic studies related to monetary policy,most literatures tend to choose the monetary-policy proxy variables of their own favorable for their empirical analysis.To what extent these proxy variables represent the policy intentions of People's Bank of China(PBC),however,rare literatures have been studied in depth.Therefore,this paper refers to the research framework of Bernanke and Blinder(1992)and combines with the actual characteristics of China's monetary policy operations to construct SVAR.models;and analyzes the response pattern of monetary policy to real economy impact,the conduction effect of monetary policy to the real economy and the controllability of eight monetary policy variables to identify China's best proxy variables for monetary policy.Based on China's monthly macroeconomic data from January 2007 to April 2019,we can draw the following conclusions:First,from the empirical results of the monetary policy response function,we can see that the quantitative variables can respond to the output and inflation shocks at the same time.However,the price-based variables respond only to the inflation shocks and not to the output shocks.It can be seen that the PBC mainly focuses on the quantitative variables for monetary policy operations,and the price-based variables are at a secondary position.Second,in the quantitative variables,the scale of the RMB loans meets the three conditions of response,conduction and controllability at the same time and is therefore the optimal proxy for monetary policy.M2 is the second best proxy because there is no significant impact on inflation compared to the scale of the RMB loans.However,Aggregate Financing to the Real Economy(AFRE)can not satisfy the controllable conditions at the same time,and both the response and the conduction have to go through a longer conduction delay.Therefore,either as a proxy for monetary policy or as an intermediary target for monetary policy,AFRE is not as good as the scale of the RMB loans and M2.Third,the monetary base which has been excluded the effect of changes in the statutory deposit reserve ratio is also a better proxy for monetary policy.There is a four-month lag between changes in the base currency and changes in the scale of the RMB loans,and the two are not a fixed multiple.Therefore,when we measure the central bank's current monetary policy stance,the base currency is a better proxy of monetary policy.When studying the impact of monetary policy on the real economy,the scale of RMB loans is better.Fourth,China's monetary policy has a poor performence in controlling inflation.Only the variable of loan size has a significant impact on its 12-month lag;while the remaining policy variables have no significant effect on inflation in the 24-month lag period.In contrast,both quantitative indicators and price-based indicators can have a significant impact on output,so China's monetary policy is effective in controlling output.One of the main uses of monetary policy proxy variables is to study the operating procedures of monetary policy.From the above research conclusions,we know that the base currency is one of the best proxy variables for monetary policy in China.Then the next question is whether our monetary policy operation follows the McCallum rule with the base currency as the instrumental variableThe second part of this paper then studies McCallum rule and China's monetary policy operation practice.By referring to the research framework proposed by McCallum(2000)in the process of testing the policy rules on the data of many countries,this paper reexamines China's monetary policy rules in terms of the choice of instrument variables,the setting of target variables,and the calculation method of gap values.First,use the Equation of Exchange to derive the McCallum rule suitable for China's situation and use it to test the fit of China's monetary policy to the rule.Then,the SVAR model is combined to study the response of China's monetary policy to output and inflation shocks and the relative importance of the two goals.Based on monthly data from January 2006 to April 2019,we can draw the following conclusions:First,McCallum's rules well describe the actual monetary policy operations of China's central bank.Specifically,the base currency after excluding the impact of changes in the statutory deposit reserve ratio is used as an instrument variable,and the deviation of the actual industrial added value and the CPI from their respective trends are used as output gaps and inflation gaps;the rules can well fit China's actual monetary policy operations.Second,unlike the US monetary policy rules fitted by McCallum(1993)and Taylor(1993),the ultimate goal of China's monetary policy is not to achieve a fixed growth rate in actual output or to maintain inflation at a certain level,but to suppress the deviation of the two from their trend by adjusting the base currency,so as to"smooth out" macroeconomic fluctuations.Third,compared with the goal of "maintaining the stability of the currency value",the monetary policy operation of China's central bank prefers the goal of "promoting economic growth".The empirical results show that not only the base currency changes caused by output shocks are more persistent,but also the policy impact of a unit output shock is about twice of the inflation shock.In the process of studying the proxy variables of monetary policy,this paper finds that our monetary policy has not done well to control inflation.Therefore,the paper then uses the identified optimal proxy variables of the monetary policy to study the regulatory effect of inflation and the possible reasons behind it.In this paper,the inflation rates which are measured by 6 different price indices such as CPI,RPI,non-food CPI,CPI deducted food and energy,PPI and CGPI,are used to systematically study inflation control from four aspects:Firstly,the inflation target pegged to the People's Bank of China was identified through the response of the six price indices to monetary base.Secondly,through the conduction of the scale of RMB loans and M2 to various price indices,the effect of monetary policy on variouse inflation are studied.Thirdly,through the mutual feedback relationship between each price index and output,and combining with the AD-AS model,the different drivers behind each price index are analyzed.Finally,according to the different linkage between CPI and PPI in the long run and the short run,combined with the different driving forces behind the two,this paper explains the effectiveness of monetary policy in inflation control.Based on the empirical analysis of the problem of the effectiveness of inflation controlling,we can get the following conclusions:First,judging from the responses of monetary base to various price index shocks,the PBC has conducted monetary policy operations targeting the CPI or RPI.Both of these measures provide the PBC with more monetary policy decision-making information.Second,judging from the responses of each price index to the impact of M2 and RMB loan scale,the effect of monetary policy on inflation control is not good.Overall,China's monetary policy has a better regulatory effect on CPI,the second is that of RPI,and has no significant effect on the control of the two core inflation rates.Moreover,there is basically no regulatory effect on PPI and CGPI.Third,judging from the feedback relationship between each price index and output,the three consumer price indices and the RPI have a positive relationship with output.There is only one-way feedback relationship between PPI and output.That is,the changes of PPI and CGPI can cause the change of output in the same direction,but the changes of output can not have a significant impact on both PPI and CGPI.The analysis results of AD-AS model show that in the short-term economy,the co-movement between CPI/RPI and output is the result of the displacement of total demand curve drived by various shocks.However,tradable good price(PPI)is dominated by global factors of supply and demand and the law of one price,and the impact of domestic supply and demand changes has little influence on it.Therefore,PPI can affect the change of domestic output while the change of domestic output can not have a significant impact on PPI.Finally,due to the strong linkage between CPI and PPI in China,and China's PPI is mainly dominated by global supply and demand factors and the law of one price,the transmission of PPI to CPI has caused difficulties in China's inflation governance.In the above research on inflation governance,although we infer the externality of China's PPI through the one-way feedback relationship between PPI and output,and the ineffective transmission of monetary policy to PPI,there is no direct evidence for this inference.Therefore,this paper then studies the relative importance of various domestic and foreign factors in China's PPI determination,in order to provide further empirical support for the conclusion of the third part.The fourth part of this paper divides the demand for industrial products into three levels:domestic demand for industrial products,foreign demand for industrial products and the total demand for industrial products in China.Combined with the impact of international crude oil price and the fluctuation of RMB exchange rate,this paper systematically studies the impact of various domestic and foreign factors on China's PPI and the relative importance of each factor.Based on the monthly data from January 2004 to December 2018,by constructing the SVAR model,this paper can draw the following conclusions:First,demand factors have a significant impact on China's industrial prices,but there are some differences in the impact of various demand factors,among which external demand,domestic demand and total demand shocks can explain 7.2%,2.78%and 5.86%of China's PPI changes,respectively.It can be seen that changes in domestic demand have little impact on PPI in China.Second,oil price shock and RMB exchange rate fluctuation are the leading forces of PPI changes in China.Crude oil price shock can explain 23%-26%of PPI changes,and RMB exchange rate fluctuation can explain 22.5%-24%of PPI changes.Third,the fluctuation of China's PPI is largely driven by external factors.The two external factors,the change of external demand and the impact of oil price,have more than 30%ability to explain China's PPI.This explains the reason why PPI is more exogenous in China.This paper has made the following contributions to the existing research:first,this paper identifies the best proxy variable of monetary policy from three aspects of response,transmission and variable controllability in domestic research for the first time,which fills in the blank of relevant research.Secondly,on the premise of not introducing "non-linear" and "time-varying" and other factors,the McCallum rule is deduced for the first time,which can provide a practical analysis framework for the measurement of China's monetary policy position and the quantitative evaluation of historical policy.Finally,this paper studies the response and transmission of China's monetary policy in the aspect of inflation governance from multiple perspectives,and covers six commonly used price indexes,systematically studies the relevant research of inflation governance. |
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